Price Optimization Systems Increase Retail Profits

Sep 03, 2002

Retailers as diverse as Longs Drugs, Meijer, Saks and Winn-Dixie are utilizing automated optimization systems to improve pricing decisions and increase gross margins by as much as 10 percent, according to the New York Times.

Carrie Johnson, analyst, Forrester Research estimates that fewer than 10 percent of retailers are currently using this technology.

Bill Franks, chief information officer, Saks said the retailer tested a system from Spotlight Solutions in Cincinnati. The software analyzes past and current sales data to determine mark downs and prices. Prices are adjusted on a store-specific basis.

Brent Lippman, chief executive, KhiMetrics, a provider of price optimization systems, said the technology can advance cross-merchandising synergies by setting prices on complementary items such as tortilla chips and salsa. According to Mr. Lippman, a major food retailer chain and client of KhiMetrics increased gross margins 5 percent in a test last year.

Meijer Stores is utilizing pricing technology from ProfitLogic. The Times article reports that, “Like other retailers using this technology, Meijer gave its merchants the option to accept or reject the system’s recommendation. If, for example, the merchant knows a cold wave is about to hit, he would delay marking down warm-weather apparel or discounting soup too drastically. Such second-guessing aside, Meijer’s merchandisers relied on the pricing system enough over a year-long testing period to glean 10 percent in gross margin improvements.”

Moderator’s Comment: How can retailers determine if
they should utilize pricing technology and determine which vendor to use? [George
Anderson – Moderator

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